This year, U.S. parents are entitled to a tax credit of up to $ 3,600 per child – up from a maximum of $ 2,000 last year – and half of that money will be deposited as a monthly check starting July. However, since these checks are actually an advance based on taxes on your current income (as opposed to what you did last year), you may have to pay back some of the money if your finances are in Year 2021. So go ahead can avoid that.
How does the child tax credit work?
For the 2021 tax year, families will receive a full credit of $ 3,600 for each child under the age of six and $ 3,000 for each child over the age of 6 but under the age of 18 if they are joint applicants less than $ 150,000 each Year Earn (or $ 75,000 for a single parent). Families earning more than that will expire their tax credit at the rate of $ 50 for every $ 1,000 of income above the threshold. for WSJ.
Dependent children 18 years of age and full-time college students 19 to 24 years of age also qualify, but only for $ 500. per CNET. Half of the tax credit will be sent out as a monthly payment between July and December, while the other half must be claimed on a 2021 tax return.
Why should I have to pay the money back?
Since the prepayments were legally signed in the middle of the tax season, the IRS uses your 2020 tax return (or, if not, your 2019 tax return) to estimate what your income could be for 2021 and backs up your checks thereon. The problem is, your finances may have already changed or will change later in 2021.
For example, you could have a new child in 2021 and be eligible for an additional $ 3,600. In that case, you could at least claim this in your tax return for 2021. If your income increases significantly from 2020 or 2019 (if you have not yet filed your 2020 taxes) this may reduce the amount of tax credit you are entitled to if you are not disqualified altogether. And since you’ve already received those auto-split monthly payments, it could mean you have to repay thousands of dollars to the IRS over the next year.
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How do I avoid that?
The legislation that created prepayment includes some safeguards to protect taxpayers from overpayment. Via cnbcProtection protects lower income recipients ($ 40,000 for single applicants, $ 60,000 for joint applicants) from having to repay an overpayment of $ 2,000, provided the error is due to net changes in the number of eligible children. (That is, a child you made a dependent in 2020 will not be eligible for your 2021 taxes – perhaps because your 21-year-old dropped out of college, for example.)
Another provision directs the finance department to set up an online portal through which you can update your income year round, as well as your number of qualified children and your marital status (Pro CNETIt is not yet clear if you can change your address or payment method (e.g. direct deposit). The idea is that the portal, due to launch on July 1st, allows you to make updates as needed to avoid surprises when you file your taxes for 2021.
Ideally, you want to report adjustments to your income before subsequent reviews come in. However, this is only possible after the portal has been started. In the meantime, and as it’s easy to forget when July is over, set a calendar reminder for July 1st, with specific instructions to log into the online portal immediately and then update your income information. ((Pro CNETYou can also refuse to receive advance checks via the portal if you would rather claim the total amount in your tax return for 2021. So this is an option too.
As April Walker, senior manager of tax practice and ethics at the American Institute of Certified Public Accountants, he told CNBC:
“I would tell taxpayers to be aware of when the portal is available. And think about what could happen in 2021 that could affect that [credit] Quantity.”
